Market Nears November Lows
Stocks slumped at the start of the Tuesday session like a driver suffering a heart attack at the wheel, and prices careened out of control for the next six hours until coming to rest in a ditch well below the critical 804 level of the S&P 500 that had held firm for two and a half months. Bulls tried to rally their troops in the last half hour on hopes for a Wednesday announcement of a new mortgage assistance plan, but bears thwarted the half-hearted gesture and pushed the major indexes to their lowest levels of the day — just above lows set back in November.
The Dow Industrials lost 3.8%, the S&P 500 was down 4.6%, the Nasdaq fell 4.2%, and the Russell 2000 was off by 4.3%. The weakness was deep and broad. There were just 218 advancing issues on the NYSE compared to 2,815 decliners and 2 new highs against 238 new lows. According to our friends at Lowry’s, today was another 90% down day with down volume accounting for 96% of total volume.
Within the S&P 500, all 10 sectors spent the day in negative territory and roughly 98% of all holdings closed in the red. Insurance companies, banks, tire manufacturers, and coal miners led the decline. Wal-Mart was the only Dow component to finish the day higher after reporting strong quarterly results. Gold miner Newmont Mining was another notable gainer.
As with all 90% down days, it is likely that we now face the potential for a short rally from oversold conditions. The move could be quite ferocious, similar to the one that followed the 90% down day that set the bear market low on November 20. There are two warnings flags, however, that lead me to believe the rally will be fleeting even if it is flashy: First, lower prices are still simply not encouraging buyers to get off the sidelines, as buying power continues to fall while selling pressure intensifies. Second is the extreme weakness among the financials. As represented by Financials Sector SPDR (XLF), the sector breached its January lows and is now in a freefall. Buying power in the group continues to fall away and confirms the trend. Target for the XLF is now $5.50.
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